For Itunes, I don't think you have a choice, its going to be 128kbps AAC format.

With these settings, the quality from ipod is great. Don't worry about getting good quality 1/8"s. The cheapie ones will do fine, just buy the shortest cables. And unless you are uber audiophile, you can spend extra $$ on the gold-plated cables as well.

Yes, you DO have a choice.
Open iTunes-preference-importing
you can change bitrate with 'setting' menu. I stick to 192k AAC and it's better than 192k mp3, I think. AAC is known for its good compressibility(smaller size than mp3's) and preserving the CD quality. Try 'Lossless' encoding if you want exanct same quality as the CD's. The file size would be huge; 40Mega for 3min. song.. maybe.